Volatile year ahead for miners

MINERS will need to embrace innovation, cost containment and productivity to survive the volatile markets of 2015, according to a recent Deloitte report.

Released in January, the Tracking the Trends 2015 report noted miners would contend with price volatility, geopolitical turmoil, rising costs, declining grades, a lack of access to financing and sluggish global
economic growth in the year ahead.

It came as industry analysts downgraded forecasts for already-struggling commodity prices for 2015, with coal and iron ore tipped to drop to five-year lows in coming months.

The report warned against a short-term view of supply after companies began shutting down marginal operations, reducing their focus to a handful of commodities and pulling out of greenfield development in 2014.

“Combined with the critical lack of financing available to many industry players, [these decisions] may herald a pipeline obstruction that has the potential to place future supply at risk,” the report stated.

“Given the amount of time it takes to move from exploration and development to production, this exploration slowdown could create a supply imbalance in the next decade or two.

“This will only be exacerbated as current reserves are depleted, and could ultimately tip the industry back into another unsustainable production cycle.”

According to the report, the poor market conditions will offer countless opportunities to funded mid-tier players in 2015, giving them the pick of majors’ spin-offs and juniors’ distressed assets, potentially shifting industry ownership structures into the future.

Deloitte Australia national mining leader west coast Nicki Ivory said the imperative in the mining sector was to adapt to changing market conditions and produce more for less cost.

“In a world where volatility has become the norm, the key to future success for Australian miners still lies in driving operational excellence via cost containment and productivity, and truly embracing innovation and technology,” she said.

“With commodity prices where they are, sustainable productivity improvements and a relentless focus on cost management remain critical, and achieving sustainable operational excellence requires both a long-term commitment and a willingness to embrace new cultural norms.

“In an environment of zero tolerance for underperformance, companies must rethink not only their traditional approaches to mining operations, technology deployment, and trading and marketing, but also their underlying cultural approach to costs.”